Greenwashing: A Growing European Concern

Over the past few years, the term "greenwashing" has gained increasing attention. Companies and individuals often claim to engage in sustainable practices that, upon closer examination, are misleading or exaggerated. But what exactly is greenwashing, and why is it a growing concern in Europe?

Understanding Greenwashing

Greenwashing refers to the practice of presenting products, services, or corporate activities as environmentally friendly or sustainable without sufficient evidence to support these claims. This tactic misleads consumers, investors, and stakeholders by creating the illusion of environmental responsibility.

A specific form of this practice is "carbon-washing," where companies overstate their positive impact on carbon footprints without robust data to substantiate their claims. Organizations may manipulate metrics, selectively disclose favorable data, or omit crucial details to maintain a green image.

A recent report from RepRisk mapped over 1,000 instances of misleading sustainability claims in the past year alone. The report highlighted an initial surge in greenwashing cases across the EU in 2022-2023, followed by a notable 12% decline—the first decrease in six years. However, while the number of cases is reducing, the severity of misleading claims is increasing. Notably, over 70% of these violations come from the private sector. The decline in cases is attributed to the EU’s strengthened regulations, improving transparency and accountability. Regulatory efforts are proving effective in curbing greenwashing, leading to more reliable and honest sustainability communication.

From January 1, 2025, new rules governing environmental and climate-related claims in advertising will come into effect under the International Chamber of Commerce (ICC)'s updated marketing code. This eleventh edition reinforces stricter guidelines for sustainability-related communications. Terms like "environmentally friendly," "green," or "climate-smart" may only be used if they can be substantiated. Additionally, environmental claims must be based on complete life cycle analyses to ensure accuracy and prevent misleading messaging.

The Rise of Competence Greenwashing

An emerging form of greenwashing stems from the increasing demand for sustainability expertise—"competence greenwashing." This occurs when individuals with minimal qualifications present themselves as sustainability experts after completing basic training or online courses.

True expertise in Environmental, Social, and Governance (ESG) roles requires in-depth technical and scientific knowledge, such as greenhouse gas (GHG) emissions, biodiversity, hydrology, and atmospheric science. Many professionals in sustainable finance and ESG investing, however, lack this specialized expertise, coming instead from finance, marketing, or management backgrounds. As regulatory requirements become more science-driven, the need for genuine expertise in sustainability grows ever more critical.

The Growing Role of ESG in Corporate Strategy

Before addressing solutions to greenwashing, it's essential to highlight why ESG has become central to corporate strategies. Companies across industries are integrating ESG principles into their business models—not just as a moral obligation but as a means to drive innovation, mitigate risk, and attract investment.

Organizations benefit from ESG integration in several ways:

Regulatory Compliance: Aligning with frameworks such as the EU’s Corporate Sustainability Reporting Directive (CSRD) ensures legal adherence and enhances corporate credibility.
Risk Management: ESG strategies help identify and mitigate climate-related and social risks.
Investor Attraction: Companies with strong ESG performance attract more investors and financing opportunities.
Operational Insights: ESG provides a deeper understanding of risks and opportunities, adding competitive value.

How Greenwashing Happens & Its Risks

Greenwashing arises from exaggerated or unregulated environmental claims. Many companies, either due to ignorance or opportunism, make misleading claims that expose them to significant risks:

Reputation Damage: Misleading sustainability claims can erode consumer trust and damage brand equity.
Regulatory Risks: With evolving ESG regulations, companies face legal consequences for non-compliance.
Regressive Impact: Being exposed to greenwashing can hinder a company’s long-term sustainability goals.

Preventing Greenwashing: Key Strategies

To mitigate greenwashing risks and enhance stakeholder trust, companies should implement the following measures:

1. Strengthen Internal Controls

Develop comprehensive systems for ESG data management and reporting.
Ensure transparent and consistent data collection and disclosure processes.

2. Engage External Experts

Work with specialists to refine sustainability strategies and improve ESG compliance.
Train marketing and communications teams to avoid misleading sustainability messaging.

3. Use Third-Party Verification

Seek independent evaluations of ESG disclosures to validate accuracy and integrity.
Third-party assurance builds credibility and trust with stakeholders.

Moving Forward: Balancing Growth with Integrity

As global demand for ESG transparency increases, companies must shift towards genuinely sustainable practices. This includes:

Climate change mitigation and adaptation
Circular economy initiatives
Pollution prevention
Protection of water resources, biodiversity, and ecosystems

Adopting evidence-based sustainability strategies in line with regulatory frameworks will not only prevent greenwashing but also enhance trust and credibility in an increasingly scrutinised marketplace.

The Role of Recruiters and HR in Preventing Competence Greenwashing

To ensure ESG expertise is authentic, organizations should avoid:

Mislabel existing executives as ESG or sustainability experts without relevant expertise.
Creating symbolic ESG roles to meet market demands without actual sustainability knowledge.
Hire ESG professionals based solely on introductory online certificates instead of subject matter expertise in climate science, biodiversity, or ecosystem management.
Forming ESG teams without a balance of scientific and financial expertise, which is essential for accurately assessing environmental risks.

All knowledge is valuable, but not all expertise is equally relevant. Regulators, investors, and corporate leaders must assess the actual sustainability expertise of those managing ESG portfolios.

Conclusion

Greenwashing misleads consumers and investors, undermining genuine sustainability efforts. Transparent and accountable ESG reporting is crucial for long-term business success. By implementing proper strategies and ensuring accurate disclosures, companies can build credibility and trust while contributing to a truly sustainable economy.

With stronger regulations on the horizon, businesses hope to move toward more honest and transparent sustainability communications and reports, which will benefit society and the environment.